US Property-Casualty Cos Face 2Q Hit From Weather Loss

   Of DOW JONES NEWSWIRES

NEW YORK -- As the second quarter draws to a close, property-casualty insurers, like many beachgoers, are praying for sunny skies and mild weather.

The industry, which has benefited in recent periods from less severe weather, was hammered in the quarter by severe weather, including a late-season snowstorm in the Northeast in April and weather patterns that spawned hundreds of tornados during a 10-day period in May.

Property-casualty insurers are expected to pay out an estimated $3.3 billion in the second quarter - the industry's largest quarterly catastrophe loss since the Sept. 11 attacks in third-quarter 2001, according to Insurance Services Office Inc., which tracks property-casualty claims data.

As a result, insurers could feel some pressure in the second quarter from weather losses, analysts said. However, the industry's fundamentals should be much improved as property-casualty companies have focused on increasing rates and tightening terms and conditions in recent years.

"Most companies, particularly on the primary side, are going to have a harder hit to earnings because of the catastrophe activity in the quarter," said Michael Paisan, a Legg Mason insurance analyst. "It's going to be one of the heaviest quarters on record."

Unlike years past, primary insurers rather than reinsurers will likely bear the brunt from heavy catastrophes in the second quarter, Paisan said. Many reinsurers have raised the attachment point at which they reimburse primary companies for losses, meaning they will only pay for losses above a predetermined level, Paisan said.

A number of insurers have already announced initial weather loss estimates for the second quarter, including Safeco Corp. (SAFC) and Chubb Corp. (CB).

Safeco, which expects pretax catastrophe losses of $90 million, is expected to post operating earnings of 36 cents a share in the second quarter, according to a survey of analysts by Thomson First Call. The Seattle insurer earned $105.2 million, or 82 cents a share, in last year's second quarter after taking a $3.6 million restructuring charge. Operating income was 37 cents a share.

Analysts expect Chubb, which envisions after-tax catastrophe losses of $49 million, to earn $1.03 a share on an operating basis. The Warren, N.J., insurer reported net income of $210.2 million, or $1.20 a share, in the prior-year period. Operating income was $1.05 a share.

Other large property-casualty insurers that could be hurt by the weather include Allstate Corp. (ALL), Travelers Property Casualty Corp. (TAPA) and Hartford Financial Services Group (HIG), said Paisan, who doesn't own any of the stocks.

Travelers is expected to earn 39 cents a share on an operating basis in the second quarter, according to Thomson First Call. The Hartford, Conn., insurer reported net income of $332 million, or 33 cents a share, in the prior-year period. Operating income was 36 cents a share.

Analysts expect Hartford to post operating earnings of $1.18 a share in the second quarter, according to Thomson First Call. The Connecticut insurer earned $185 million, or 74 cents a diluted share, in last year's second quarter. Operating income was $1.16 a diluted share.

Jay Cohen, a Merrill Lynch & Co. insurance analyst, said in a research note earlier this week that weather will be an issue in the second quarter for Allstate, one of the nation's largest personal lines insurers, given the active tornado season. He noted that Allstate, which hasn't preannounced its catastrophe losses in the quarter, has a market share below its national average in the states most impacted by the weather, such as Kansas and Tennessee.

"Although it is dangerous to read into a lack of a warning, one could suspect that if catastrophe losses were going to cause the company's earnings to fall materially below current expectations, the company might have issued a press release," said Cohen, who doesn't own the stock. "It is quite possible that Allstate's catastrophe losses in the second quarter are more than the market expects, but we expect underlying earnings - excluding weather - to be better than expected."

Allstate is expected to earn 74 cents a share on an operating basis in the second quarter, according to Thomson First Call. The Northbrook, Ill., insurer, which took a $68 million charge to boost reserves and $23 million in restructuring costs, earned $344 million, or 48 cents a diluted share, in last year's quarter. Operating income was 60 cents a share.

Meanwhile, life insurers, which have been hurt by weak investment returns and lower demand for variable products as equity markets have weakened, could be on tap for a pretty good quarter.

   Life Insurers See Improving Credit Trends

Vanessa Wilson, a Deutsche Bank Securities Inc. insurance analyst, said life insurers should benefit in the second quarter from improving credit trends, fewer surrenders, or cashing in, of annuity policies, an increase in variable annuity sales and improved capital to meet regulatory obligations. That should more than offset current pressures from low interest rates in the near term.

"The more equity-sensitive companies will have more leverage," Wilson said.

Wilson, who doesn't own any of the life insurance companies she follows, expects positive results from Hartford, which has a large life-insurance and annuity business, John Hancock Financial Services (JHF), Lincoln National Corp. (LNC) and MetLife Inc. (MET).

MetLife is expected to post operating earnings of 70 cents a share, according to Thomson First Call. The New York insurer reported net income of $387 million, or 53 cents a share, in last year's second quarter. Operating income was 69 cents a share.

Analysts expect John Hancock to earn 75 cents a share on an operating basis, according to Thomson First Call. The Boston insurer earned $98.3 million, or 33 cents a share, in the prior-year period. Operating income was 72 cents a share.

Lincoln National, which markets itself as Lincoln Financial Group, is expected to post operating earnings of 79 cents a share, according to Thomson First Call. The Philadelphia insurer reported net income of $59.4 million, or 31 cents a diluted share, in last year's second quarter. Operating income was 67 cents a share.

-By Chad Bray, Dow Jones Newswires; 201-938-5293; chad.bray@dowjones.com

Updated June 27, 2003 3:22 p.m.